A limited company is an organisation that you can set up to run your business. It’s responsible in its own right for everything it does and its finances are separate to your personal finances. Any profit it makes is owned by the company, after it pays Corporation Tax. The company can then share its profits.Ownership Every limited company has ‘members’ - people or organisations who own shares in the company. Directors are responsible for running the company. Directors often own shares, but they don’t have to.Legal responsibilities There are many legal responsibilities involved with being a director and running a limited company. Most limited companies are ‘limited by shares’. This means that the shareholders’ responsibilities for the company’s financial liabilities are limited to the value of shares that they own but haven’t paid for.Example A company limited by shares issues 100 shares valued at £1 each when it’s set up. Its 2 shareholders own 50 shares each and have both paid in full for 25 of these. If the company goes bust, the maximum the shareholders have to pay towards its outstanding bills is £50 - the value of the remaining 25 shares that they’ve each not paid for. Company directors are not personally responsible for debts the business can’t pay if it goes wrong, as long as they haven’t broken the law.

How to set up a limited company You must set up the company with Companies House and let HM Revenue and Customs (HMRC) know when the company starts business activities. Every financial year, the company must:

put together statutory accounts

send Companies House an annual return

send HMRC a Company Tax Return

The company must register for VAT if you expect its takings to be more than £81,000 a year. If you’re a director of a limited company, you must:

fill in a Self Assessment tax return every year

pay tax and National Insurance through the PAYE system if the company pays you a salary

MORE ON SETTING UP A LIMITED COMPANYOverview You can set up a private limited company to run your business. You must appoint people to run the company (called ‘directors’) and register (or ‘incorporate’) it with Companies House. Once the company is registered you’ll get a ‘Certificate of Incorporation’. This confirms the company legally exists and shows the company number and date of formation. Sole traders are personally responsible for their business debts, but the liability in a private company is usually limited to the shareholders. The liability depends on the type of company being created. If your company’s based overseas, read the guide on registering an overseas company or contact UK Trade and Investment (UKTI)for advice.Types of private limited company A private company limited by shares is owned by its members (called shareholders). The liability of each member is limited to the original value of the shares issued to them, but not paid for. Example A shareholder has 500 shares originally valued at £1 each. They have previously paid for 100 shares, ie £100. At the time the company fails, they’re liable up to the original value of shares they haven’t paid for, ie £400. A private company limited by guarantee means the members of the company financially back it up to an amount agreed previously, if things go wrong. Its members aren’t called shareholders.Register your companyBefore you register All limited companies must be registered (incorporated) with Companies House. To do this you need:

the company’s name and registered address

at least one director

at least one shareholder

details of the company’s shares - known as ‘memorandum of association’

rules about how the company is run - known as ‘articles of association’

How to register You can do this:

online - but only if the company is limited by shares and uses model articles of association

by post using form IN01 - you must do this if you change the model articles or use your own

using an agent

Fees and how long it takes Online takes 48 hours and costs £15 (paid by debit or credit card or Paypal). Postal applications take 8 to 10 days and cost £40 (paid by cheque made out to ‘Companies House’). You can get a same day service by post. It costs £100 but you must get your application to Companies House by 3pm. The address you need is on the form.

The names of all private limited companies in the UK must end in either ‘Limited’ or ‘Ltd’ and the name can’t:

be the same as any other name on the Companies House index of names

contain a ‘sensitive’ word or expression unless you get permission

suggest a connection with government or local authorities

be offensive

The Welsh equivalents of ‘Limited’ or ‘Ltd’ are ‘Cyfyngedig’ and ‘Cyf’. Companies House has more guidance on company names.Registering a company name doesn’t mean your trademark is protected - you have to register trademarks separately.Registered address The registered office address is where official communications are sent - eg letters from Companies House and HM Revenue & Customs. The address doesn’t have to be where you operate your business from but it must be:

a physical address

in the same country that your company is registered in - eg a company registered in Wales must have a registered address in Wales

You can use a PO Box, but you must also include a physical address and postcode eg PO Box 123, 1 High Street, Anytown, SW1A 1AA. You can use your home address or the address of the person who will manage your Corporation Tax if these addresses meet the rules above.4. Directors and company secretariesDirectors When you register your company it must have at least 1 director. A director is legally responsible for running the company. A director must be older than 16 and not be someone disqualified from being a director. You can make another company a director - but at least 1 of your company’s directors must be an individual. Directors have responsibilities that include making sure the company is run properly.Company secretaries You don’t need a company secretary for a private limited company. Some companies use them to take on some of the director’s responsibilities. The company secretary can be a director but can’t be:

the company’s auditor

an ‘undischarged bankrupt’ - unless they have permission from the court

The restrictions placed on a person when they’re made bankrupt usually end when they’re discharged. You can check if someone has been discharged using the Insolvency Register. Even if you have a company secretary, the directors remain legally responsible for the company.Shareholders When you register a company you’ll need to make a ‘statement of capital’. This is:

the number of shares the company has and their total value - known as the company’s ‘share capital’

the names and addresses of all shareholders - known as ‘subscribers’ or ‘members’

Example A company that issues 500 shares at £1 each has a share capital of £500. Every limited company must have at least one shareholder. There’s no maximum number. Directors can be shareholders.Role of shareholders Shareholders are owners of the company and they have certain rights eg, directors must get shareholders to vote and agree on changes to the company.

Articles of association When you register your company you must have articles of association. These are the rules about running the company that shareholders and ‘officers’ (directors or company secretary) have to agree to. For example, rules about how decisions that affect the company must be made and the role of shareholders in those decisions. Most companies use standard (‘model’) articles - but you can change these or write your own as long as the company doesn’t break the law.Download ‘Model articles of association - limited by shares’ (DOC, 105KB)Download ‘Model articles of association - limited by guarantee’ (DOC, 105KB)Community interest companiesYou can’t use these model articles of association if you’re setting up a community interest company (CIC). Instead, download the CICregulator’s model constitutions and adapt these for your company’s articles.Set up your company for Corporation Tax Within 3 months of starting up in business, you must give HM Revenue & Customs (HMRC) specific information about your company. You can do this once you’ve got your company’s Unique Taxpayer Reference. HMRC will use this information to work out when your company must pay Corporation Tax. What you must tell HMRC You must tell HMRC:

the date you started in business

your company name and registered number

the main address where you do business from

what kind of business you do

the date you’ll make your annual accounts up to

if you’ve taken over a business or you’re part of a group

Any business activity counts as starting up, eg buying, selling, employing someone, advertising or renting a property.Your company’s Unique Taxpayer ReferenceHMRC will send your company’s Unique Taxpayer Reference to your registered office address, usually within a few days of the company being registered (incorporated).The letter tells you how to:

give HMRC the information they need about your company

set up your company’s HMRC online account for Company Tax Returns and Corporation Tax